Posted by: Rational Voice | July 25, 2010

Are Profits Bad?

Today whenever you hear about “big business” and their profits, it all seems to be negative, like it’s a bad thing that they made money, especially now in the middle of an economic slump. Is it really such a bad thing though? Liberals would lead you to believe that it is, like business is stealing money from people and keeping it all to themselves.

I disagree though. As a conservative and someone who believes in capitalism, it makes me happy when I hear about someone posting a profit. Why? Is it because I like seeing big corporations take advantage of people? Is it because I favor the rich over the poor? Is it because I embrace greed? If you think it’s any one of those you’re wrong. I like profit because profits are what keep this economy going.

When corporations post profits it means that they have extra money to invest in new technologies to become more efficient or productive. It means that they can expand their operations by buying more equipment that will allow them to produce more and make even more money. Or they could create new facilities. Creating new facilities will give construction workers jobs and once the new facility is complete the corporation that built it may have to (assuming this is a facility to expand their operations) hire new workers, providing jobs to those who may not have had one before.

Providing more people with actual jobs will mean more people have money. When more people have money it means they have money to spend. When they have more money to spend (assuming they actually spend it) other businesses will post more profits, allowing more businesses to post profits. This helps the cycle above to repeat. Profits perpetuate profits. It’s because of this that higher taxes hurt business and economic growth by inhibiting this cycle. When you decide to take more from them simply because of the fact that they have more, you decrease the amount of capital a business or employer has to hire new workers or invest.

Look at it this way, if you increase taxes 10% on, let’s say, a small business making $500,000 a year, you’re taking $50,000 that they could have use to hire a new worker. That worker potentially could have helped them produce more which, in turn, could have helped them to post a higher profit. I guarantee that whatever they do with it, it’s a helluva lot better than allowing the government to waste it. Businesses have an incentive to not waste money, but rather make it. If they don’t make money, they’ll be out of business. It’s as simple as that.

This is highly simplified though and assumes that it happens on a significant scale, but the main point remains. There may be a point when things level out. It happens and it part of an economic cycle and there may be slight down turns, like the dot com bust in the late 90s, early 00s. These things happen but the economy resets and recovers, even stronger than it was before. I also believe that the odds of a bust every few years decrease when people and businesses are responsible with their money, ie people not taking on debt they can’t afford, not lending (or being forced to lend) to those who simply don’t have the means to make payments, etc, basically any of the irresponsible practices and policies that caused our current mess.

Oh and to debunk the statements I made in the beginning about why I love profits:

-Businesses taking advantage of people—there are laws to prevent this and if a business doesn’t follow them, there are ways for the workers to address these issues and stop them.

-Favoring the rich over the poor—it isn’t so much that I favor them. It’s just that I take an objective view of things. For this, just answer this simple question: when is the last time a poor person gave someone a job? The wealthy have the means to provide jobs by means of (gasp!) their profits!

-Greed—well I guess I kind of lied about this one. Greed is a good thing, so long as you keep it in check. Wanting to make more and more money is a good thing so long as you do it legally and in a way that allows you and whoever you get do business with to mutually benefit from your transactions. Is it really bad to want money so that you can improve your life and the lives of those around you? I want business owners to be greedy (to a point) because when they make money, other people benefit, whether it be their employees with raises, people they hire, or others who benefit from them spending that newly earned money. Or they can give some of their profits to charity, so that others not even tied to that business can benefit as well. I’d rather have a business owner who is motivated by profits to make more profits than some bleeding heart liberal that wants to be fair and spread the wealth around causing that business to potentially flop.

Oh and don’t forget, with more people having more money the tax base increases, not to mention that businesses will have more money, the government will be able to collect more taxes without having to increase tax rates. A smaller percentage on a larger amount will lead to more revenue than a higher percentage on a lower amount. Yes, yes I know that it doesn’t make sense and that model doesn’t work unless that former is a lot more money than the latter, but that’s my point. You will be able to get a lot more money by a less regulated, less taxed system! Check out the Laffer Curve sometime and you’ll see what I mean.

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